Go­ing Dutch

The Nether­lands will pay a price for its exit tax Matthew Lynn

The Daily Telegraph - Business - - Front Page - Matthew lynn

Two bil­lion? Five bil­lion? Think again. If Unilever wants to fi­nally leave the Nether­lands, and base it­self only in the UK, then it may have to pay a vast sum for the priv­i­lege. An “exit tax” of up to €11bn (£9.9bn) is be­ing pro­posed – a sum so vast that even a com­pany with a mar­ket value of over £100bn is likely to baulk at pay­ing it.

As they look for ways to ex­tract more out of com­pa­nies, the Left and the en­vi­ron­men­tal­ists are in­creas­ingly latch­ing onto “exit taxes” as a way of stop­ping what they de­scribe as a “race to the bot­tom”.

And yet, that is not just wrong, it is some­thing worse as well. It is a mis­take. Sure, the Dutch can im­pose a tax on any­one that leaves the coun­try if they want to. They might even suc­ceed in forc­ing Unilever to stay.

In the medium term, how­ever, they will only hurt them­selves. In truth, if you want com­pa­nies to base them­selves in your coun­try, the trick is to make your­self as at­trac­tive as pos­si­ble, not to whack them over the head for hav­ing the temer­ity to leave.

It is sur­pris­ing that the Dutch of all peo­ple have for­got­ten that – but the coun­try will pay a high price as it re­learns a few sim­ple lessons in eco­nomics.

The saga of where Unilever bases it­self has been run­ning for decades. Its cu­ri­ous An­glo-Dutch struc­ture was in­her­ited from the 1929 merger be­tween Lever Broth­ers and Mar­garine Unie. Dual na­tion­al­ity worked well enough for the first few decades, but in the last few years has be­come a mess of com­pet­ing am­bi­tions. First the de­parted chief ex­ec­u­tive Paul Pol­man tried to move the base to the Nether­lands, in part be­cause our de­par­ture from the EU made Lon­don look less at­trac­tive for a multi­na­tional busi­ness. Af­ter that was scrapped, it this year de­cided to base it­self only in the UK, sim­pli­fy­ing a struc­ture that had be­come cum­ber­some, con­tro­ver­sial, and per­haps most im­por­tantly, an ob­sta­cle to the re­struc­tur­ing the sprawl­ing em­pire – which takes in ev­ery­thing from Dove soap to Mag­num ice cream – might well need one day soon. The plan was for Unilever to be a purely

Bri­tish com­pany. The Dutch are usu­ally good losers, which is one of the rea­sons we like them so much, but they have taken this one very badly. A group of Left-wing and Green Par­lia­men­tar­i­ans have cooked up a plan for an exit tax, a mas­sive charge on any com­pany that tries to leave, and that has in­creas­ing sup­port in the Nether­lands.

Exit taxes have started to be­come very pop­u­lar with gov­ern­ments at­tempt­ing to squeeze more taxes out of their econ­omy. Ni­co­las Sarkozy, the for­mer French pres­i­dent im­posed one on en­trepreneur­s flee­ing France’s in­creas­ingly puni­tive tax regime, var­i­ous US states have dal­lied with them, and the Euro­pean Union, with de­press­ing pre­dictabil­ity, is look­ing at im­pos­ing exit fees as part of its drive to har­monise the tax base.

As gov­ern­ments start to search des­per­ately for ways to plug the holes blown in their bud­gets by Covid-19, their pop­u­lar­ity will only in­crease. In­deed, if the Dutch do im­pose one, it may be­come a tem­plate for other na­tions around the world.

Of course, it is pos­si­ble to un­der­stand the su­per­fi­cial at­trac­tions of an exit tax. With cap­i­tal so mo­bile, and with it in­creas­ingly easy to base a busi­ness any­where, it has be­come very hard to tax cor­po­ra­tions. There is al­ways go­ing to be some­where with lower taxes they can base them­selves. How can you stop a com­pany from re­lo­cat­ing some­where more at­trac­tive when it could do so with the flick of a few but­tons on a key­board (and if we all keep work­ing from home even, it is go­ing to be even eas­ier be­cause you won’t need to worry about staff any more)? A mas­sive charge for leav­ing may well be the only op­tion.

The trou­ble is, an exit tax will do huge dam­age to any coun­try that im­poses one. Let’s leave aside for the mo­ment the fact that the tax is al­most cer­tainly il­le­gal un­der Euro­pean law, and will be over­ruled af­ter a few years of wran­gling through the courts. Let’s leave aside as well the fact it is es­sen­tially a ret­ro­spec­tive tax, and just about ev­ery de­vel­oped coun­try has al­ways for­bid­den those on the grounds that both peo­ple and com­pa­nies have a right to know what charges they will po­ten­tially face be­fore ar­rang­ing their af­fairs, not af­ter­wards.

Those are all se­ri­ous points. But the real prob­lem is this: why would any busi­ness or en­trepreneur want to es­tab­lish it­self in a coun­try that be­haves like that? Taxes might be in­creased any­where, and to a level you no longer find ac­cept­able, but you al­ways have the op­tion of mov­ing else­where. That might be trou­ble­some and ex­pen­sive, but it is an al­ter­na­tive if taxes be­come too out­ra­geous. The Dutch are plan­ning to close that door. You can’t ever leave, at least not with­out pay­ing a mas­sive fine. We can tax you again and again, and there is noth­ing you can do about it. That is surely un­ac­cept­able. True, the gov­ern­ment may raise a few bil­lion. But it will lose tens and tens of bil­lions from all the busi­nesses that will de­cide to base them­selves some­where else. Is that a good trade? Not re­ally.

In the end, the Dutch may hang on to at least half of Unilever. But they will have thrown away their rep­u­ta­tion for fair deal­ing, for treat­ing com­pa­nies sym­pa­thet­i­cally, and for find­ing com­pro­mises be­tween dif­fer­ent in­ter­ests.

For busi­nesses and en­trepreneur­s, the Nether­lands will be­come a pariah state, best avoided be­cause you never know what kind of taxes it is about to slap on you. That is a very high price to pay. Even for €11bn, it is hard to be­lieve it is worth it – and it may well turn into one of the most ex­pen­sive pol­icy mis­takes of re­cent times.

Even for Unilever, with its £100bn mar­ket value, the prospect of an €11bn fine for quit­ting the Nether­lands for the UK is daunt­ing

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